Move Over Pork Bellies: CME Group To Begin Trading Bitcoin Futures

On Tuesday,
CME Group the exchange giant that peddles in futures contracts of everything from eurodollars and Treasury notes to oil, natural gas, corn, livestock and even precious metals such as gold announced it would add crypto-currencies to its arsenal.

Later this quarter, CME will begin trading Bitcoin futures by way of a cash-settled contract based on its CME CF Bitcoin Reference Rate. The once-a-day rate will set the price of bitcoin futures and will be based on pricing seen on crypto exchanges such as Bitstamp, DGAX, itBit and Kraken.

CME's impetus for getting in on the bitcoin action? It's all about the money.

"Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract," Terry Duffy, CEO of CME Group, said in a press release. "As the world's largest regulated FX marketplace, CME Group is the natural home for this new vehicle that will provide investors with transparency, price discovery and risk transfer capabilities," Duffy added.

As CME notes, the combined market capitalization of crypto has reached $172 billion, with 54% of that coming from bitcoin. The Bitcoin spot market now trades roughly $1.5 billion in notional value a day, CME notes.

CME, in partnership with a firm called Crypto Facilities Ltd., has been tracking crypto-currencies for nearly a year, publishing its U.S. dollar-denominated bitcoin reference rate (BRR) every day at 4 p.m. London Time. Additionally, CME and Crypto Facilities Ltd. publish a real time index for the spot market.

"The BRR has proven to reliably and transparently reflect global bitcoin-dollar trading and has become the price reference of choice for financial institutions, trading firms and data providers worldwide," said Dr.Timo Schlaefer, CEO of Crypto Facilities, in a statement.

Wall Street's growing obsession with Bitcoin is manifest in a plethora of new traders and investors entering the market. For instance, in August Forbes reported on former CME traders who are entering the action. Subsequent to that, former hedge fund star Mike Novogratz went public with his own crypto-hedge fund.

Colleague Laura Shin wrote the July cover of Forbes Magazine, detailing the players behind the $100 billion surge in crypto market capitalization in 2017 to that point. In a July profile of value investor Bill Miller, Forbes was the first to detail his large holding in Bitcoin by way of an over $120 million hedge fund at the time. Miller, a former star manager at Legg Mason, admitted his speculative Bitcoin holding could plunge but he portrayed it as a rare disruptive monetary experiment where the skew of outcomes was heavily in his favor.

CME's push to enter the bitcoin business has only propped up prices. Bitcoin traded above $6,400 in early trading, touching new record highs. That's about double the price it changed hands in the summer.